BAML’s Bull & Bear Indicator rises to highest in 2.5 years
It may be peak earnings season but the stock market’s main obsession seems to be President Donald Trump. And as investors continue to second guess his next move and decipher what his policies may mean for the economy, equities are likely to continue taking their cue from politics.
In a sign of how large the president looms over the market, an analysis of FactSet data by MarketWatch shows that one out of four companies referenced Trump during their most recent earnings conference calls. Much of the discussion appears to be driven by questions over the impact his policies will have on each company within the context of growth and trade, underscoring the apprehensive mood in the market.
That sense of uncertainty, in part, hobbled the market for much of the week as major indexes languished. The S&P 500 moved less than 0.1% in either direction for three straight days this week, the first such streak since November 2014, according to Dow Jones data.
Analysts blamed the market’s lackluster action on the absence of specific details from Trump’s administration even as the president moved quickly to fire off a string of executive orders on everything from a temporary immigration ban to withdrawing from landmark trade pacts.
The lack of clarity is likely to be an ongoing feature, forcing the market to fly blind, at least until April when the budget is released, said Steven Ricchiuto, chief economist for Mizuho Securities USA.
In the meantime, Ricchiuto urged investors to think outside of the box when it comes to Trump, adding that he’s smart enough to pull off many of his campaign pledges.
“Making the assumption that he is stupid is wrong,” said Ricchiuto, who believes Trump’s actions, no matter how irrational they appear to some, are governed by his background as a real estate developer.
“He will always start from a position of power and then moderate to a different position,” he said.
The Dow Jones Industrial Average DJIA, -0.19% advanced 186.55 points Friday, or 0.9%, to close at 20,071.46 but slipped 0.1% for the week while the S&P 500 SPX, -0.06% rose 16.57 points, or 0.7%, to 2,297.42 for a weekly gain of 0.1%, shrugging off its torpor after Trump took steps to overhaul Dodd-Frank law governing the financial industry.
Market sentiment remains bullish even as “Trump fatigue” sets in with Bank of America Merrill Lynch’s Bull & Bear Indicator rising to its highest in 2.5 years, according to the investment bank.
Next week, 84 S&P 500 companies are scheduled to report quarterly results. The FactSet scorecard on fourth-quarter earnings shows 65% of S&P 500 companies beat mean earnings-per-share estimates and 52% have turned in better-than-expected sales.
Apart from earnings, financial stocks are likely to take center stage as expectations of a watered-down Dodd-Frank will be a boon for the industry, which had been chafing under the restrictions placed in the aftermath of the financial crisis.
Under former President Barack Obama, regulators have applied financial rules under the most severe interpretations. Under Trump, they are likely to look for the most lenient, said Ricchiuto.